A Score that Really Matters: Your Credit Score

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Before lenders make the decision to give you a loan, they have to know that you're willing and able to pay back that mortgage loan. To understand your ability to repay, they assess your income and debt ratio. To assess your willingness to repay the mortgage loan, they look at your credit score.

The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more on FICO here.

Credit scores only consider the info in your credit profile. They don't take into account income, savings, down payment amount, or factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is now. Credit scoring was invented as a way to consider only that which was relevant to a borrower's willingness to pay back a loan.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score is calculated with positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

Your credit report should contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This payment history ensures that there is sufficient information in your credit to assign an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They should spend some time building up a credit history before they apply for a loan.

At Mortgage X-Change, we answer questions about Credit reports every day. Give us a call: 214-383-9400.

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